People struggling to meet their payments on a credit card, loan, car finance, mortgage or other forms of consumer credit may be offered a payment holiday of up to six months. In this article we will explain how payment holidays work, when they may be a helpful option and when you should avoid them.
What are the rules on consumer credit payment holidays?
People who are struggling to meet their monthly repayments can approach their lender to ask for a break from having to pay the debt. This usually applies to credit cards, personal loans, motor finance and mortgages.
Keep in mind that some information you read online may be out-of-date and refer to the government rules on payment holidays introduced during the COVID-19 pandemic, but no longer apply.
You can still approach any creditors you have to request an informal break from your payments in order to give you more time to manage your debts. However, there is no obligation to approve the request. Different creditors will consider this kind of request in different ways, but many will prioritise helping you restructure your debt to ensure you are able to pay it off in full. Keep in mind that a payment holiday will usually affect your credit score as the payments you miss are still documented on your credit file.
In Scotland, the national government has implemented a ‘moratorium’ period, which gives people struggling with debt six months when creditors are unable to take any action to recover money owed. If you think you may be eligible for this, it is worthwhile speaking to a debt expert from the Scottish branch of the StepChange debt charity.
People living elsewhere in the UK can find free debt help through one of the organisations on our 'Where to get free debt advice' page.
Is it a good idea to take a payment holiday on my credit cards and loans?
Taking a break from your debt commitments can seem like a great idea at first, but there are some important factors to consider. For example:
- While you are provided with a break from paying the amount you borrowed, the interest on the payment will still accrue during the payment holiday. Your monthly repayments could increase at the end of the payment holiday.
- For people with high-interest debt, the break could end up adding a considerable amount to the total that needs to be repaid, potentially leading to further difficulties in making payments in the future.
- At the end of the payment holiday you could end up paying off the debt over a longer period, with a higher level of interest.
Keep in mind that if you are struggling, it is far better to take an authorised payment holiday than to end up missing payments and falling behind, which would have a devastating effect on your credit record. Speak to your lender to work out the best course of action for your individual circumstances.
What are the alternatives to taking a payment holiday?
If you are worried about the impact of taking a payment holiday on your credit card, loan or other finance, consider:
- Asking you lender for more tailored support, perhaps reducing the minimum monthly payment to a more affordable level for a short period of time, allowing you to keep reducing the balance
- Transferring the balance of your existing debt to a credit card with an interest-free introductory period. Although you will require an excellent credit score to be eligible for this type of card, if you can make the move, you can be provided with up to 25 months interest free to help you sort out your finances
How can I apply for a payment holiday?
Get in contact with your lender directly to request a payment holiday. You will likely need to provide details on your income, living costs, other debts and any upcoming changes to your financial situation. In some cases, you will need to do this by filling out an income and expenditure (I&E), which is similar to writing out a budget.
Your creditors will also want to know the reason you are asking for a break from your payments and when you expect to be able to return to your normal schedule. If your payment holiday is approved, make sure to get confirmation in writing.
The payments that you would have normally made but missed during your break will need to be paid after the payment holiday ends. This can be done by increasing your future monthly payments or by adding more time to the repayment period, meaning it will take longer to clear your debt.
What help can I get if I don't qualify for a payment holiday?
If you are not able to get a payment holiday, it is still worth speaking to your lender if you are having difficulties making the repayments. They may have other forms of support for individuals and be able to suggest another solution that can help.
You could also get free debt advice from an independent expert. They will be able to help you organise your debt, make a budget and sometimes even negotiate with creditors on your behalf. For details of organisations that offer these services, read our article 'Where to get free debt advice'.